Buying Silver Put Options to Profit from a Fall in Silver Prices

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Contents

Buying Silver Put Options to Profit from a Fall in Silver Prices

If you are bearish on silver, you can profit from a fall in silver price by buying (going long) silver put options.

Example: Long Silver Put Option

You observed that the near-month NYMEX Silver futures contract is trading at the price of USD 11.30 per troy ounce. A NYMEX Silver put option with the same expiration month and a nearby strike price of USD 11.00 is being priced at USD 0.7500/oz. Since each underlying NYMEX Silver futures contract represents 5,000 troy ounces of silver, the premium you need to pay to own the put option is USD 3,750.

Assuming that by option expiration day, the price of the underlying silver futures has fallen by 15% and is now trading at USD 9.6010 per troy ounce. At this price, your put option is now in the money.

Gain from Put Option Exercise

By exercising your put option now, you get to assume a short position in the underlying silver futures at the strike price of USD 11.00. In other words, it also means that you get to sell 5,000 troy ounces of silver at USD 11.00/oz on delivery day.

To take profit, you enter an offsetting long futures position in one contract of the underlying silver futures at the market price of USD 9.6008 per troy ounce, resulting in a gain of USD 1.3990/oz. Since each NYMEX Silver put option covers 5,000 troy ounces of silver, gain from the long put position is USD 6,995. Deducting the initial premium of USD 3,750 you paid to purchase the put option, your net profit from the long put strategy will come to USD 3,245.

Long Silver Put Option Strategy
Gain from Option Exercise = (Option Strike Price – Market Price of Underlying Futures) x Contract Size
= (USD 11.00/oz – USD 9.6010/oz) x 5000 oz
= USD 6,995
Investment = Initial Premium Paid
= USD 3,750
Net Profit = Gain from Option Exercise – Investment
= USD 6,995 – USD 3,750
= USD 3,245
Return on Investment = 87%

Sell-to-Close Put Option

In practice, there is often no need to exercise the put option to realise the profit. You can close out the position by selling the put option in the options market via a sell-to-close transaction. Proceeds from the option sale will also include any remaining time value if there is still some time left before the option expires.

In the example above, since the sale is performed on option expiration day, there is virtually no time value left. The amount you will receive from the silver option sale will be equal to it’s intrinsic value.

Learn More About Silver Futures & Options Trading

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

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Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Buying Silver Call Options to Profit from a Rise in Silver Prices

If you are bullish on silver, you can profit from a rise in silver price by buying (going long) silver call options.

Example: Long Silver Call Option

You observed that the near-month NYMEX Silver futures contract is trading at the price of USD 11.30 per troy ounce. A NYMEX Silver call option with the same expiration month and a nearby strike price of USD 11.00 is being priced at USD 0.7500/oz. Since each underlying NYMEX Silver futures contract represents 5000 troy ounces of silver, the premium you need to pay to own the call option is USD 3,750.

Assuming that by option expiration day, the price of the underlying silver futures has risen by 15% and is now trading at USD 12.99 per troy ounce. At this price, your call option is now in the money.

Gain from Call Option Exercise

By exercising your call option now, you get to assume a long position in the underlying silver futures at the strike price of USD 11.00. This means that you get to buy the underlying silver at only USD 11.00/oz on delivery day.

To take profit, you enter an offsetting short futures position in one contract of the underlying silver futures at the market price of USD 12.99 per troy ounce, resulting in a gain of USD 1.9900/oz. Since each NYMEX Silver call option covers 5000 troy ounces of silver, gain from the long call position is USD 9,950. Deducting the initial premium of USD 3,750 you paid to buy the call option, your net profit from the long call strategy will come to USD 6,200.

Long Silver Call Option Strategy
Gain from Option Exercise = (Market Price of Underlying Futures – Option Strike Price) x Contract Size
= (USD 12.99/oz – USD 11.00/oz) x 5000 oz
= USD 9,950
Investment = Initial Premium Paid
= USD 3,750
Net Profit = Gain from Option Exercise – Investment
= USD 9,950 – USD 3,750
= USD 6,200
Return on Investment = 165%

Sell-to-Close Call Option

In practice, there is often no need to exercise the call option to realise the profit. You can close out the position by selling the call option in the options market via a sell-to-close transaction. Proceeds from the option sale will also include any remaining time value if there is still some time left before the option expires.

In the example above, since the sale is performed on option expiration day, there is virtually no time value left. The amount you will receive from the silver option sale will be equal to it’s intrinsic value.

Learn More About Silver Futures & Options Trading

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Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

How To Buy Silver Options

Buy silver options to attain a position in silver for less capital than buying physical silver or silver futures. Silver options are available in the U.S. through the Chicago Mercantile Exchange (CME), so if you’ve wondered how to invest silver, here’s a shorter-term and less capital intensive way to do it.

How to Invest in Silver: Calls and Puts

Options allow traders to profit whether the price of silver rises or falls. Believe the price of silver will rise? Buy a call option. A silver call option gives the right, but not the obligation, to buy silver at a specific price for a certain amount of time (before expiry). The price you can buy silver at is called the strike price. If the price of silver rises above your strike price before the option expires, you make a profit. If the price of silver is below your strike price, you lose the amount of money you paid for the option, called the premium. (See “Options Basics: How to Pick the Right Strike Price.”)

Put options give the right, but not the obligation, to sell silver at a specific price (strike price) for a certain amount of time. If the price of silver falls below the strike price, you reap a profit of the difference between the strike price and current silver price (approximately). If at expiry the price of silver is above the strike price, your option expires worthless and you lose the premium you paid for the option.

Option prices are also based on ‘Greeks,’ variables which affect the price of the option.

It is not necessary to hold your option till expiry. Sell the put or call before expiry to lock in a profit or minimize a loss.

Silver Options Specifications

Silver options are cleared through the CME, trading under the symbol SO. The value of the options is tied to the price of silver futures, which also trade on the CME. Forty strike prices are offered, in $0.25 increments above the below the the current silver price. The further the strike price from the current silver price, the cheaper the premium paid for the option, but the less chance there is that the option will be profitable before expiry. There are 60 expiry times to choose from, ranging from short-term to long-term.

Each option contract controls 5,000 ounces of silver. If the cost of an option is $0.20, then the amount paid for the option is $0.20 x 5,000 = $1,000, plus commissions. For comparison, buying a silver futures contract which controls 5,000 ounces requires $9,900 in initial margin. Buying physical silver requires the full cash outlay for each ounce purchased.

Options trading requires a margin brokerage account which allows trading in options. Interactive Brokers, TD Ameritrade and a number of other brokers provide this service.

Silver options prices and volume are found in the Quotes section of the CME website, or through the trading platform provided by an options broker.

The Bottom Line

Call and puts provide traders with a less capital intensive way to profit from silver uptrends or downtrends respectively. If the option expires worthless, the amount paid (premium) for the option is lost; risk is limited to this cost. Trading options requires a margin brokerage account with access to options.

Trading the Gold-Silver Ratio

For the hard-asset enthusiast, the gold-silver ratio is common parlance. For the average investor, it represents an arcane metric that is anything but well-known. The fact is that a substantial profit potential exists in some established strategies that rely on this ratio. Effectively, the gold-silver ratio represents the number of ounces of silver it takes to buy a single ounce of gold. Here’s how investors benefit from trading based on observed changes in this ratio.

Key Takeaways

  • Investors use the gold-silver ratio to determine the relative value of silver to gold.
  • Investors who anticipate where the ratio is going to move can make a profit even if the price of the two metals fall or rise.
  • The gold-silver ratio used to be set by governments for monetary stability, but now fluctuates.
  • Alternatives to trading the gold-silver ratio include futures, ETFs, options, pool accounts, and bullion.

What Is the Gold-Silver Ratio?

The gold-silver ratio, also known as the mint ratio, refers to the relative value of an ounce of silver to an equal weight of gold. Put simply, it is the quantity of silver in ounces needed to buy a single ounce of gold. Traders can use it to diversify the amount of precious metal they hold in their portfolio.

Here’s how it works. When gold trades at $500 per ounce and silver at $5, traders refer to a gold-silver ratio of 100:1. Similarly, if the price of gold is $1,000 per ounce and silver is trading at $20, the ratio is 50:1. Today, the ratio floats and can swing wildly. That’s because gold and silver are valued daily by market forces, but this has not always been the case. The ratio has been permanently set at different times in history and in different places, by governments seeking monetary stability.

Gold-Silver Ratio History

The gold-silver ratio has fluctuated in modern times and never remains the same. That’s mainly due to the fact that the prices of these precious metals experiences wild swings on a regular, daily basis. But before the 20th century, governments set the ratio as part of their monetary stability policies. For hundreds of years prior to that time, the ratio, often set by governments for purposes of monetary stability, was fairly steady, ranging between 12:1 and 15:1. The Roman Empire officially set the ratio at 12:1, and the U.S. government fixed the ratio at 15:1 with the Coinage Act of 1792. During the 19 th Century, the United States was one of many countries that adopted a bi-metallic standard monetary systems, where the value of a country’s monetary unit was established by the mint ratio. But the era of the fixed ratio ended in the 20th century as nations moved away from the bi-metallic currency standard and, eventually, off the gold standard entirely. Since then, the prices of gold and silver trade independently of one another in the free market.

Here’s a quick overview of the history of this ratio:

  • 2007: For the year, the gold-silver ratio averaged 51.
  • 1991: When silver hit record lows, the ratio peaked at 100.
  • 1980: At the time of the last great surge in gold and silver, the ratio stood at 17.
  • End of the 19 th Century: The nearly universal fixed ratio of 15 came to a close with the end of the bi-metallic era.
  • Roman Empire: The ratio was set at 12.
  • 323 BC: The ratio stood at 12.5 upon the death of Alexander the Great.

Importance of Gold-Silver Ratio

Despite not having a fixed ratio, the gold-silver ratio is still a popular tool for precious metals traders. They can, and still do, use it to hedge their bets in both metals—taking a long position in one, while keeping a short position in the other metal. So when the ratio is higher, and investors believe it will drop along with the price of gold compared to silver, they may decide to buy silver and take a short position in the same amount of gold.

So why is this ratio so important for investors and traders? If they can anticipate where the ratio is going to move, investors can make a profit even if the price of the two metals fall or rise.

Investors can make a profit even if the price of the two metals fall or rise by anticipating where the ratio will move.

How to Trade the Gold-Silver Ratio

Trading the gold-silver ratio is an activity primarily undertaken by hard-asset enthusiasts often called gold bugs. Why? Because the trade is predicated on accumulating greater quantities of metal rather than increasing dollar-value profits. Sound confusing? Let’s look at an example.

The essence of trading the gold-silver ratio is to switch holdings when the ratio swings to historically determined extremes. So:

  1. When a trader possesses one ounce of gold and the ratio rises to an unprecedented 100, the trader would sell their single gold ounce for 100 ounces of silver.
  2. When the ratio then contracted to an opposite historical extreme of 50, for example, the trader would then sell his 100 ounces for two ounces of gold.
  3. In this manner, the trader continues to accumulate quantities of metal seeking extreme ratio numbers to trade and maximize holdings.

Note that no dollar value is considered when making the trade. That’s because the relative value of the metal is considered unimportant.

For those worried about devaluation, deflation, currency replacement, and even war, the strategy makes sense. Precious metals have a proven record of maintaining their value in the face of any contingency that might threaten the worth of a nation’s fiat currency.

Drawbacks of the Ratio Trade

The difficulty with the trade is correctly identifying the extreme relative valuations between the metals. If the ratio hits 100 and an investor sells gold for silver, then the ratio continues to expand, hovering for the next five years between 120 and 150. The investor is stuck. A new trading precedent has apparently been set, and to trade back into gold during that period would mean a contraction in the investor’s metal holdings.

In this case, the investor could continue to add to their silver holdings and wait for a contraction in the ratio, but nothing is certain. This is the essential risk for those trading the ratio. This example emphasizes the need to successfully monitor ratio changes over the short- and mid-term to catch the more likely extremes as they emerge.

Gold-Silver Ratio Trading Alternatives

There are a number of ways to execute a gold-silver ratio trading strategy, each of which has its own risks and rewards.

Futures Investing

This involves the simple purchase of either gold or silver contracts at each trading juncture. The advantages and disadvantages of this strategy are the same—leverage. That is, futures trading is a risky proposition for those who are uninitiated. An investor can play futures on margin, but that margin can also bankrupt the investor.

Exchange-Traded Funds (ETFs)

ETFs offer a simpler means of trading the gold-silver ratio. Again, the simple purchase of the appropriate ETF—gold or silver—at trading turns will suffice to execute the strategy. Some investors prefer not to commit to an all or nothing gold-silver trade, keeping open positions in both ETFs and adding to them proportionally. As the ratio rises, they buy silver. As it falls, they buy gold. This keeps the investor from having to speculate on whether extreme ratio levels have actually been reached.

Options Strategies

Options strategies abound for the interested investor, but the most interesting involves a sort of arbitrage. This requires the purchase of puts on gold and calls on silver when the ratio is high and the opposite when the ratio is low. The bet is that the spread will diminish with time in the high-ratio climate and increase in the low-ratio climate. A similar strategy can be applied to futures contracts also. Options permit the investor to put up less cash and still enjoy the benefits of leverage.

The risk here is that the time component of the option may erode any real gains made on the trade. Therefore, it is best to use long-dated options or LEAPS to offset this risk.

Pool Accounts

Pools are large, private holdings of metals that are sold in a variety of denominations to investors. The same strategies employed in ETF investing can be applied here. The advantage of pool accounts is that the actual metal can be attained whenever the investor desires. This is not the case with metal ETFs where certain very large minimums must be held in order to take physical delivery.

Gold and Silver Bullion and Coins

It is not recommended that this trade be executed with physical gold for a number of reasons. These range from liquidity and convenience to security. Just don’t do it.

The Bottom Line

There’s an entire world of investing permutations available to the gold-silver ratio trader. What’s most important is that the investor knows their own trading personality and risk profile. For the hard-asset investor concerned with the ongoing value of their nation’s fiat currency, the gold-silver ratio trade offers the security of knowing, at the very least, that they always possess the metal.

10 ways to invest in silver

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You may be wondering why you should even consider buying silver in the first place. After all, most commercials in the United States talk about buying gold. But what about silver? Is it a good investment?

The good news is that silver has very similar properties to gold, and it also has an intrinsic value. While it is more available than gold, silver is relatively scarce on our planet. In fact, the U.S. Geological Survey has predicted that silver may be the first element on the periodic table to go extinct. Yep, even before gold.

Silver has held value throughout history and across the globe, mainly because people can see the inherent value in this precious metal. In ancient times people chose silver as a tangible option to make purchases. This was a much more efficient system than simply bartering.

Unlike many other commodities on Earth, silver is durable and can really stand the test of time. This makes it a good choice for currency as it is also portable and will not degrade during transport.

Silver is fungible, meaning a certain weight of silver will always have the same value as an equal amount of silver. It’s also cognizable which means it has a long history of being readily recognized as valuable. In other words, when people see silver, they know that it is really worth money.

In addition, silver is also an excellent conductor of electricity, and it can be used as an industrial metal, making it valued for more things than decoration or currency.

In light of all these things, silver makes an excellent investment.

If you’re looking for a way to diversify your financial portfolio, if you’re a collector, if you’re looking for a safe haven investment, or if you simply like silver, there are a number of ways to purchase it.

Certainly buying physical silver is one avenue, but there are many other ways to invest in the silver industry.

Option #1: Buy Physical Silver

Probably the most straight forward way of purchasing silver is to buy the physical metal. Physical metal might include bullion silver like coins, bars, ingots, or rounds. It might also mean sterling silver such as the silver used to make jewelry.

Many people consider buying physical silver as a safe haven security in case something were to happen to digital or paper currency systems. In other words, if the digital or paper currency systems we currently use collapsed, silver would still maintain its value.

Owning physical silver (especially bullion silver) gives an investor the advantage of owning something that is directly related to market value.

Logistical disadvantages to buying physical silver include needing a place to store it, security issues, and insurance. It would be unsafe to store large quantities of silver in an unsecured home, so the cost to keep it safe may eat away at an investment.

Additionally, dealers will often charge a small premium when you purchase from them. This may not be a great disadvantage for investors who are choosing to keep their physical silver for a long time, but frequent traders may find these extra fees eat away too much of their profits.

Types of Physical Silver

There are several types of physical silver. Not every investor or collector is going to be looking for the same thing. Silver Coins

There are several types of silver coins, and there are specific distinctions between the two.

The first is silver bullion coins like American silver eagles and Canadian maple leaf coins.

The second is known as “junk” silver coins. They do hold quite a bit of value, but the word “junk” means that the coins are not valuable as a collector item. Because of this, these coins can usually be found with little to no premium cost. An example of this would be pre-1964 US quarters that are 90% silver.

Remember when buying silver quarters to not be cheated by people who try to inflate the amount of silver you’re buying. Always do your math, and remember that the coins are not pure silver, so don’t pay for the 10% additional metal.

Silver Bars

Silver bars are another way to purchase physical silver. Bullion silver bars are .999 fine purity. They’re somewhat easier to store than coins, and they can be as large as 1,000 ounces. However, if you’re looking to buy silver for the first time, it’s probably better to invest in smaller silver bars that are easier to resell for a higher price.

Silver Jewelry

Silver jewelry is an option for investment, but it should be noted that silver jewelry is seldom pure silver. Instead, it’s sterling silver, meaning it has been mixed with 7.5 percent copper to make it hold its shape after daily stresses.

Option #2: Buy Silver Futures

The silver market is not set at a fixed price, and those in the silver market can limit some of the price risks by purchasing silver futures.

Silver futures are standardized contracts in which a buyer agrees to take a specific quantity of silver at a set price for a future delivery. By doing this, silver producers use a short hedge, or short position, to lock in a selling price. On the other hand, consumers use a long hedge, or long position, to ensure that they know the purchase price for the silver that they need.

Outside of the producer and consumer market, there are also speculators who buy silver futures when they believe silver prices will rise, or sell when they think silver prices will fall.

As an investor, if you’re buying silver futures, your profit is set not by market value, but rather the way the value changes. Someone who is a long trader will want the silver price to increase so that they have made a profit compared to the original price set. On the other hand, a short trader hopes that the price of silver has gone down, locking them into a better rate and selling it for more than it’s actually worth based on the current market value.

Option #3: Buy Silver Options

Another way to purchase silver is through silver options. Silver options are similar to futures, though there are some key differences.

There are two types of options available — calls and puts. A silver call option is purchased by traders who are bullish and believe they can benefit from rising silver costs. Conversely, those who believe that the price of silver will fall would purchase silver put options.

Someone who puts forth a call option puts forth an offer to buy silver at a specific price by a pre-determined expiration date. On the other hand, a put option is someone offering to sell silver at a specific price before a pre-determined expiration date.

The main difference between silver futures and silver options is a person who purchases an option has the right, but not the obligation, to buy or sell silver. The value of the option is directly connected to the price of silver futures, but it does not hold the same level of risk.

To purchase a silver option, an initial premium must be paid. However, since an investor is not obligated to follow the silver futures’ price change, the loss is limited to the original premium paid.

As silver options only grant the right but not the obligation to assume the underlying silver futures position, potential losses are limited to only the premium paid to purchase the option.

Option #4: Buy Silver CFD’s

CFD’s, or contracts for difference, is a way for traders to invest in a commodity without actually owning the physical commodity. Unlike futures, this gives the investor a no-risk way of owning a physical underlying asset.

A CFD allows an investor to speculate on the underlying asset without being physically responsible for it. Because they’re not actually buying a physical item, they are not liable for costs of ownership like management fees and commissions.

The amount of profit a trader makes on a CFD is determined by the difference between their purchase price and their selling price. There may be additional finance charges involved with this transaction that could affect the final profits from the sale.

Option #5: Buy Shares in Silver Mining Companies

Another way to invest in silver is through the stock market by buying silver mining company shares.

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Stocks in silver mining are usually correlated to the rise and fall of value associated with silver prices. If the price of silver is low, the shares are likely to drop, and if the price of silver rises, the shares will also likely rise. However, stock in silver companies has value beyond the daily supply and demand of silver making it a potentially safer investment than physical silver.

One disadvantage of buying shares is the value of the mining shares is linked to the performance of the mining operation. For example, if the company has had an accident on site it may negatively affect the price of their shares.

This is more likely to apply to a specific mining company as opposed to all silver mining companies, which may make it helpful to own shares of more than one silver mining company.

Option #6: Buy Shares in Silver Streaming and Silver Royalty Companies

Another option for silver investors is to buy shares of silver streaming companies. Silver streaming companies do not run mining operations but instead finance miners and get a royalty of the production.

While the mining company will see to the hands-on collection of precious metals, a silver streaming or silver royalty company will see to it that their operation continues to be funded.

Silver is a commodity that changes value due to supply and demand, but the actual miners can’t fluctuate their costs that quickly. For instance, a miner’s salary would not change day-to-day based on the day’s market value of silver. This can make it difficult for mining companies to maintain a healthy running budget based on the whims of the market.

That’s where the silver streaming companies come in. In most cases, the mining company and the streaming company strike a deal that is mutually beneficial. That deal might include selling silver at a set below-market price in the future, or there might be a dollar amount attached. In exchange, the streaming company makes sure that the mining company has the cash flow needed for daily operations.

When it comes to investing in silver streaming companies, the value is still often connected to the market value of silver, but it’s a more conservative way of investing.

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Option #7: Buy Shares in Physical Silver Funds and ETFs

ETFs, or exchange-traded funds, are an excellent way of diversifying your portfolio.

Physical silver ETFs allow you to invest in hard silver assets that are being managed by a third party such as a manager or a custodian. The holder of a physical silver ETF owns a share that represents a specific amount of silver measured in ounces.

Silver ETFs were introduced in the early 2000s alongside gold ETFs. One of the benefits of owning a physical silver ETF is it’s much easier to liquidate assets. It’s also easier to trade and more accessible than silver futures.

If you’re looking for a way to invest in silver ETFs, iShares is a common way to get started.

Option #8: Buy Shares in Silver Mining Funds and ETFs

A silver mining ETF invests in companies that mine silver, as opposed to purchasing shares of physical silver.

The beauty of an ETF is that it combines a preselected collection of stocks and bonds. If one part of your ETF is performing poorly, there’s a good chance that another portion will be performing well.

A silver mining ETF invests in several silver mining companies instead of trusting that a single company will perform well. This is beneficial if a particular mine is not producing well, or if they have a public relations issue connected to a mining accident.

Option #9: Buy Shares from ETFs with a Mix of Physical Silver and Silver Miners

If you’re looking to create an even more diverse portfolio, you can also opt to invest in an ETF that combines both direct and indirect exposure to silver.

This type of ETF would give you both physical silver and shares of multiple silver mining companies.

Option #10: Invest in Companies that Benefit From Higher Silver Demand or a New Silver Rush

Thinking outside the box, there is an additional way to invest in silver. There are many industries and companies that would perform better when silver is in high demand.

These companies may be indirectly connected with silver, but their success is still linked to it.

Examples of this would be bullion dealers and mining equipment companies. If there is a rise in demand for silver, bullion dealers would greatly benefit from the increased profits. Likewise, equipment mining companies would see an increase in equipment sales if there was a higher demand for silver.

Other businesses that would benefit are ones that search for silver. These exploring companies seek out locations for new silver mines and prove that silver exists in a certain place. As the demand for silver rises, so would their services.

Another example might be jewelry companies that would benefit if silver became more scarce and consequently more desirable.

Final Words on Buying Silver

For just about any kind of investor or collector, there are a lot of options for purchase. Silver is a commodity that will likely continue to hold value for a long time, and may potentially increase in value as the supply dwindles and the demand rises.

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